6 reasons your competitors are beating you in the bidding wars

John Sanford

6 reasons your competitors are beating you in the bidding wars

It’s Sunday evening and John and Mary Homeseller and Anita Deal, their real estate agent, are sitting at the dining room table, ready to confront a pile of purchase agreements. The Homesellers were smart to listen to Ms. Deal’s advice and decided to entertain all offers simultaneously, rather than have them trickle in, piecemeal.

It’s a hot market, and the Homeseller’s own an attractive home, priced right. One of these offers will win the day. Which one? And, why is your offer the one that didn’t? What does your competition have that you don’t?

They have loan preapproval

Even a suspicion that you may have trouble qualifying for a mortgage could cause the seller to eliminate your offer from consideration. Your competition took the time to prepare for the war by seeing a lender and going through the pre-approval process.

They may have even gone so far as to request a letter from the lender stating that they’ve completed the underwriting process and they’re ready to go, pending the home appraisal.

Benjamin Franklin was right. “By failing to prepare, you are preparing to fail.”

Their offer contains an escalation clause

Suppose Mr. and Mrs. Homeseller are asking $250,000 for their lovely home. Since your competition knows there will be multiple offers, their aim is to submit the cleanest, strongest offer possible.

So, their real estate agent, I.M. Best, writes the offer at full price with an escalation clause stating that Mr. Best’s client will pay $2,500 more than competing offers up to a specified maximum – an amount his client is comfortable paying.

In essence, this buyer’s offer will increase incrementally up to that maximum. Is this a smart move? There are two schools of thought — yes and no.

Those who think it’s a wise move say that the strategy shows that you are earnest in your desire to win the home. And, in fiery real estate markets, the strategy grabs most sellers’ attention.

The naysayers feel that buyers may get carried away and place the maximum bid higher than they can live with should they win the bidding war.

If you aren’t comfortable with an escalation clause, your agent can request that your offer be held in backup in case the accepted offer falls through. It happens frequently in multiple-offer situations. In their frenzy to win the battle, many buyers make irrational offers that they can’t fulfill.

Your offer has too many contingencies

Think about the scenario we painted at the beginning: Mr. & Mrs. Homeseller and their pile of offers. Unlike kids in a candy shop, they and their agent will scrutinize every line of every offer, down to the smallest detail. While we may not know exactly what their hot buttons are, we do know that they want top dollar. So, naturally, the offering price will be the first place in the contract they look.

After that, they will scrutinize the terms of each offer. How many contingencies is each buyer requesting and how long do they want to be able to take to fulfill them? Are there any deal-breaker contingencies, such as the buyer needing to sell his or her current home before consummating this deal?

Offers with too many demands and lengthy contingency periods will most likely end up at the bottom of the pile.

The competition that wins the home won’t ask the seller to buy him a home warranty, pay for closing costs or get nit-picky on the repairs he wants the seller to either make or pay for.

They have more cash than you

Cash is just as much, if not more so, “king” in real estate as it is in any other financial transaction. The all-cash buyer has an enormous advantage over buyers who need financing to buy the home.

If you can’t pay cash for the home, a larger down payment will be attractive to the seller as will proof that you have the funds to close the deal and the cash reserves to make up the shortfall if the appraisal is too low.

Some sellers are impressed with a large earnest money deposit and that strategy just might give you an advantage in a bidding war situation.

They did their homework

You most likely lost the bidding war because your competition outsmarted you. They hired the right real estate agent who painstakingly researched current market value in the neighborhoods so their clients knew exactly how high to bid and when to stop.

The agent took the time to speak with the listing agent to find out what the seller’s hot buttons are – what their motivation is for selling and what the buyer could do to help the seller reach his or her goals, and then structured the offer to purchase accordingly.

For instance, suppose the seller is hoping to be able to rent back the home for a month or two after closing while he closes on his new home. This is valuable information for the buyer to be privy to because her agent can structure the offer to allow the sellers to remain in the home after closing, as tenants. In particularly hot markets, some buyers even offer the seller a reduced rent during the rent-back period.

They’re faster than you

If you’ve missed out on any number of homes by not being among the first to view them, you understand that time is of the essence in a sellers’ real estate market. Sure, it’s challenging to create spaces, especially at the last minute, in a busy schedule to tour homes for sale, but it’s a must if you hope to be competitive in a multiple-offer situation.

Your competition has signed up on their agent’s website to be notified of new listings as soon as they hit the market. Their agents are on top of their game by vigilantly seeking listings that fit their clients’ criteria.

Like any battle, it’s incredibly hard to win a bidding war against an equally matched foe. Hone your tactics and strategy and enlist a battle-hardened real estate agent and the chances are good you’ll prevail.